BetaShares Australian ETF Review – 2017 in Review

One word: BIG!

We’ll begin our posts in 2018 with a look at the year 2017 in ETF-land. And what a year it was!

The Global ETF industry recorded significant growth in 2017, receiving its highest ever level of net inflows (US$633B) – a growth rate of 18% year on year. In total the global industry ended the year at US$4.8T1.

Locally, our ETF industry followed this global trend in 2017 and broke virtually all records available. The Australian ETF industry’s funds under management continued to grow rapidly, increasing a particularly fast 40% year on year to end the year at a new record high of $36B. The industry grew FuM by $10.2B which smashed the previous record ($6.3B) set in 2015.

Market cap

ASX Exchange Traded Funds Market Cap: $36.0B – new record high!

Market cap growth for year: +40%, +$10.2B – new record high for $ value growth

New money

New unit growth for year (units outstanding by number): 41%

Net new money (units outstanding by $ value): +$7.8B – new record high for annual net flows

Comment:Flows by issuer remained relatively concentrated in 2017. The largest 3 issuers (Vanguard, iShares and BetaShares), together attracted 72% of industry’s flows.

Products

226 Exchange Traded Products trading on the ASX

New products: 31 new products launched in the year (vs. 40 in 2016), 3 products closed/matured

Comments: In a year where virtually all metrics are up, it’s rather striking that product development numbers in 2017 were lower than in 2015 and 2016. This is unsurprising in some ways as it represents an indication of the industry’s maturity. We do consider that product development will continue strongly in 2018 however.

Performance

Comment: Geared US Equities provided investors the best returns in 2017 as the US market continued to rally strongly. GGUS has now appeared in the top 5 by performance for 2 years running. Asian and Emerging Markets equities were the next best categories in terms of performance.

Analysis of inflows

Product Style

Inflow Value

2017 (%)

2016 (%)

Index

$6,204,385,947

79%

67%

Smart Beta

$1,017,657,766

13%

21%

Active

$609,959,590

8%

11%

Comment: 2017 saw vanilla index tracking ETFs take significantly more flows than 2016 and was once again the dominant category. In saying that, 30% more flows (by $) went into smart beta products this year although the % of flows was significantly down (-8%) as investors sought out low-cost market cap tracking products. If global trends are anything to go by, we continue to expect the smart-beta category to continue to grow and develop as the industry matures. The $600m of inflows into Active ETFs was encouraging as it was 1.5x the $ amount recorded in 2016 (~$390m).

Top 5 category inflows (by $) – 2017

Category

Inflow Value

International Equities

$ 3,218,543,150

Australian Equities

$ 2,639,166,266

Fixed Income

$ 1,144,785,846

Cash

$ 388,523,500

Australian Listed Property

$ 230,038,981

Comment: Strikingly the ranking of inflows into high level asset categories was exactly the same in 2017 v. 2016. The fixed income category continues to grow strongly – taking in ~$400m more than in 2016. Fixed income is another area where we expect product development to occur in a meaningful way in 2018.

Top category outflows (by $) – 2017

Category

Outflow Value

Currency

($ 8,089,676)

Comment: Very low outflows recorded by category with only Currency ETFs receiving net outflows for the year.

Top sub-category inflows (by $) – 2017

Category

Inflow Value

Australian Equities – Broad

$ 1,939,124,485

International Equities – Developed World

$ 1,387,767,085

Australian Bonds

$ 911,766,007

International Equities – US

$ 525,175,382

International Equities – Sector

$ 478,437,583

Top sub-category outflows (by $) – 2017

Category

Outflow Value

Currency

($ 37,819,378)

Cash

($ 4,911,562)

Oil

($ 4,209,489)

Soft Commodities

($ 329,210)

Comment: 2017 is the first time the “Australian Equities – High Yield” sub-category dropped out of Top 5, with US equities coming into the Top 5 in its place. At the sub-category level it is actually Broad Australian Equities (rather than International Equities) that ranks as #1 – perhaps unsurprising given the continued home bias displayed by Australian investors.

We believe the industry will continue to grow strongly in 2018 – and forecast total industry FuM at end 2018 to be in the range of $47-49B . Read our 2018 predictions article and stay tuned for our monthly ETF review throughout the year!

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BetaShares Capital Limited (ACN 139 566 868 / AFS Licence 341181) is the Responsible Entity and product issuer. The information on this website is general information only and we have not taken your individual circumstances, financial objectives or needs into account when preparing the above information so it may not be applicable to your circumstances. You should consider your circumstances and the relevant PDS and obtain professional financial advice before making any investment decision. You can access our PDS on this website or by calling us on 1300 487 577. This information was prepared in good faith and we accept no liability for any errors or omissions or any loss caused as a result of reliance on it. Past performance is not an indication of future performance. Only investors who are authorised as trading participants under the ASX Operating Rules may invest through the PDS. Other investors may buy units in our Funds on the ASX. Standard and Poor’s® and S&P® are registered trademarks of The McGraw-Hill Companies, Inc. (“McGraw-Hill”), and ASX® is a registered trademark of the ASX Operations Pty Ltd (“ASX”). These trademarks have been licensed for use by BetaShares. BetaShares Funds are not sponsored, endorsed, sold or promoted by S&P, McGraw-Hill or ASX, and S&P, McGraw-Hill and ASX make no representation, warranty or condition regarding the advisability of buying, selling or holding units/shares in BetaShares Funds. BetaShares® and Back Your View® are registered trademarks of Betashares Holdings Pty Ltd.